On September 20, 2023, PDD Holdings Inc (PDD, Financial) experienced a daily loss of 2.13%, following a 3-month gain of 30.17%. The company's Earnings Per Share (EPS) stand at 4.05. Despite these fluctuations, the question remains: is PDD Holdings' stock modestly undervalued? This article aims to provide a comprehensive valuation analysis to answer this question and guide potential investors. We encourage you to read on for an insightful exploration of PDD Holdings' financial health and future prospects.
Company Overview
PDD Holdings Inc (PDD, Financial), listed on Nasdaq, is a multinational commerce group that manages a diverse portfolio of businesses. PDD Holdings strives to bring more businesses and individuals into the digital economy, thereby boosting local communities and small businesses through increased productivity and new opportunities. The company has established a network of sourcing, logistics, and fulfillment capabilities to support its underlying businesses. With a current price of $96.26 per share and a fair value (GF Value) of $120.29, PDD Holdings appears to be modestly undervalued. The following analysis delves deeper into the company's value, blending financial assessment with crucial company details.
Understanding GF Value
The GF Value represents the current intrinsic value of a stock, derived from our unique method. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. This calculation is based on three factors:
- Historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow) at which the stock has traded.
- GuruFocus adjustment factor based on the company's past returns and growth.
- Future estimates of the business performance.
We believe the GF Value Line represents the fair value at which the stock should be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
The stock of PDD Holdings is estimated to be modestly undervalued based on GuruFocus' valuation method. At its current price of $96.26 per share, PDD Holdings stock is estimated to be modestly undervalued. Considering PDD Holdings' relative undervaluation, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it is crucial to carefully review a company's financial strength before deciding to buy its stock. A good starting point is to look at the cash-to-debt ratio and interest coverage. PDD Holdings has a cash-to-debt ratio of 9.83, which is better than 87.85% of 1103 companies in the Retail - Cyclical industry. GuruFocus ranks PDD Holdings' overall financial strength at 9 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. A company with high profit margins is typically a safer investment than one with low profit margins. PDD Holdings has been profitable for 2 out of the past 10 years. Over the past twelve months, the company had a revenue of $23.50 billion and Earnings Per Share (EPS) of $4.05. Its operating margin is 23.69%, which ranks better than 96.48% of 1107 companies in the Retail - Cyclical industry. Overall, GuruFocus ranks PDD Holdings' profitability at 4 out of 10, indicating poor profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long-term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of PDD Holdings is 51.8%, which ranks better than 95.52% of 1048 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 0%, which ranks worse than 0% of 895 companies in the Retail - Cyclical industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, PDD Holdings' ROIC was 68.44, while its WACC came in at 4.86.
Conclusion
In summary, the stock of PDD Holdings is estimated to be modestly undervalued. The company's financial condition is strong, and its profitability is poor. Its growth ranks worse than 0% of 895 companies in the Retail - Cyclical industry. To learn more about PDD Holdings stock, you can check out its 30-Year Financials here.
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